The alacrity of the U-turn by the Government on reform of interest-free or low-interest loans shows either that the proposal was poorly thought through or that the Government was not prepared for the opposition it met – largely from the financial advisory sector.
The Bank of Mum and Dad is an intrinsic, albeit informal, element of the financial services structure in Ireland. In a world where young adults can struggle to persuade banks that they have the capacity and discipline to repay relatively substantial sums, financial support from parents can provide a vital bridge to home ownership, funds for refurbishments or even to smooth the financial blow between employments.
On Revenue advice, the government of the day in 2014 tightened gift rules around parents providing financial support for adult children following what was perceived to be concerted tax avoidance by wealthy families.
That still left family loans as an avenue. These, the thinking went, came at a cost. The recipients either paid interest on the loan at a rate that at least matched what the parents could get if they lodged the money as savings in a bank or they were considered to have received a taxable benefit for the difference between what they did pay, if anything, and that rate.
But of course, with savings rates effectively at zero over the past few years, there was no cost at all to people borrowing from their parents, interest free.
The answer, someone in the Department of Finance or the Revenue Commissioners figured, was to reset the "fair cost" of such loans to the rate the borrowers would have had to pay if they went to a bank or credit union – an altogether higher figure.
But which lending rate, from which bank, fixed or variable? And who decides?
There was no such detail. In fact, the whole plan didn't even merit a mention on budget day. Instead, it was snuck into the Finance Bill without fanfare.
With a housing crisis making it ever more difficult for young people to own a home, and eye-watering rents making it difficult for them to save anyway, antagonising both them and their parents was a risky move for a Government that might need their votes.
The decision by the Minister that the proposal needed “greater consideration” seems like the only sensible course of action at this time.
